The Next-Gen Meal Stack

I’ve written a fair amount about the broad “food tech” space looking at financing trends, overcrowding, city expansion, as well as the consumer behavior attached to the different spaces within the food consumption industry.

As I continue to think about the space, I wanted to get a few thoughts down on what I call the Next-Gen Meal Stack.

First, there have been plenty of articles discussing the rise of fast casual dining in the united states. A term called “chipotlification” has even been coined. If you want a quick rundown check out pieces from Quartz, The New Yorker, and The Washington Post. Long-story short, it’s booming.

Changing consumer behavior like the rise of the niche consumer helps explain this segment’s growth, leading to a dramatic rise in the number of fast casual establishments versus traditional restaurants.

As a business owner, fast casual restaurants are often cheaper to open, have better margins, and are generally thought to be more scalable. So if this overall trend is booming, how does that trickle down to startups?

With this changing behavior, three new main layers of the meal stack have emerged:

Prepared Meal Delivery (Fast Food 2.0) — This is what I believe is the most “venture scale” business layer of the meal stack. Fast Food 2.0 companies let consumers order a prepared meal that is quickly delivered and is warm, or can be quickly reheated. Typical prices range from $8–$12, and often these companies are vertically integrated, controlling the ingredient purchasing to the preparation. The end-to-end control allows for flexibility, while the distribution/logistics allows for a larger footprint than most existing restaurant operations, with a lower overhead cost. Shervin Pishevar wrote about this in-depth here (he’s an investor in Munchery). Companies leading this space include Munchery and Sprig.

The one biggest issue is understanding how overall unit economics work for these businesses. The model of going from negative gross margins and establishing loyalty to then raising prices will not work for food companies, so as expansion plans slow, and venture dollars dry up, the economics better work. While these companies may be able to build a brand that resonates with “high quality, lower price, faster service” there is too much optionality, too little loyalty, and not enough differentiation to allow for price inelasticity, and this will continue to be the case for the foreseeable future.

Meal-in-a-box (subscription ingredient services) — Meal-in-a-box companies center around improving the overall cooking experience.

Blue Apron, Plated, and HelloFresh are the main players in this space. They offer pre-portioned ingredients with detailed instructions, stress the importance and experience of cooking, and offer a subscription element to remove having to think about meals on a daily basis. They also have the luxury of being able to deliver countrywide.

Despite this, I am less bullish on the market opportunity for these companies versus traditional meal delivery. All of them have a great value-prop for on-boarding but if we look at two of those key value-props, I believe there are serious gaps.

1. Learn how to cook new and exciting things (the experience) — The chef will churn out as they will want to expand outside the menu if their skill increases, or will shift to an on-demand grocery service (Instacart, Good Eggs, etc.) that allows for more variety + larger portions at a more affordable price point.

2. Save time cooking (the tangible value) — The stated cook time of ~30 minutes often falls closer to 50–60 minutes, and includes significant clean up. This is often too long.

Absent of these two alleged shortfalls is price. In reality, at $10+/plate, a home-cooked meal for your family clocking in at $40+ is not a good deal, while for 2 people it is a great infrequent experience, but not a sustainable, long-term one. The fundamental belief that I have that many don’t is that I don’t view this as a dining-out killer, but more a supplemental meal stream. And if that’s the case, the value prop becomes a hard sell. Time is a major constraint in today’s on-demand consumer, but home cooked meals I believe have staying power. This leads to…

Fast dinner kits/providers — If you want to dominate the cook-at-home category, winners must cut down on time. In the end I believe those seeking true “experiences” will opt for DIY options a la Instacart + PlateJoy orKitchensurfing on the higher, ultra-experience focused end.

Those like Gobble or even HungryRoot, which offer a fast cook-at-home alternative have immense value, both economic and in time. These companies offer the same logistical/distribution advantages of Blue Apron/Plated in terms of shipping reach, while lowering consumer time impact.

In a somewhat similar vein, this is also where Munchery’s new Cook-At-Home offering could prove to be a killer to other competitors. They’ve been very deliberate with their messaging of shorter cook time, while still keeping the experience aspect at the forefront of their branding (along with great chef partnerships), all without the commitment of a subscription box filled with expiring ingredients bearing down on the consumer throughout the week.

The pseudo-cook is the majority of consumers in the United States and understanding the major trends in food today of unique experiences, responsible sourcing, healthy options, and lower time impact, all at an affordable price point, will drive these venture-scale businesses forward.

In addition to the meal stack, expect food production startups to also be a key component to the overall food tech ecosystem. Companies like Grove Labs, Freight Farms, and Edenworks (among many others) provide interesting opportunities to integrate with the entire meal stack, as well as service ancillary businesses, making a bet on a different, but still fast-growing food trend.

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